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URL 36: The FCC’s Document About Double Billing / Fraudulent Billing—12 Parts in Main Document, Followed by 2 Attachments (May 29, 1975)

URL 36: The FCC’s Document About Double Billing / Fraudulent Billing—12 Parts in Main Document, Followed by 2 Attachments (May 29, 1975) (In Chapter 37, Page 174) (4,109 words) (43,000 cumwords)

In the matter of Amendment of 73.1205 of the Commission’s rules in order to prohibit certain fraudulent billing practices, Docket No. 20499.

1. Notice of proposed rulemaking is hereby given in the above-entitled matter.

2. On October 20, 1965, the Commission amended Part 73 of its rules and regulations to prohibit fraudulent billing practices by broadcast licensees. 1 FCC 2d 1068. At the same time, it adopted a Public Notice on Applicability of the Fraudulent Billing Rule, which provided illustrations of certain such practices with which the Commission had become familiar. (1 FCC 2d 1075) On May 13, 1970, the Commission amended the rule to provide clarifying language regarding its scope, and added to the previous Public Notice on the applicability of the rule, two more examples relevant to the amendment adopted on that date. At the same time, the Commission combined in one subpart, 73.1205,the previous three sections dealing with the AM, FM, and TV services. (23 FCC 2d 70). The present text of 73.1205 is as follows:

Section 73.1205. Fraudulent billing practices. No licensee of a standard, FM, or television broadcast station shall knowingly issue to any local, regional, or national advertiser, advertising agency, station representative, manufacturer, distributor, jobber, or any other party, any bill, invoice, affidavit, or other document which contains false information concerning the amount actually charged by the licensee for the broadcast advertising for which such bill, invoice, affidavit, or other documents is issued, or which misrepresents the nature or content of such advertising or which misrepresents the quantity of advertising actually broadcast (number or length of advertising messages) or the time of day or date at which it was broadcast. Licensees shall exercise reasonable diligence to see that their agents and employees do not issue any documents which would violate this section if issued by the licensee.

Note: Commission interpretations in connection with the rule may be found in a separate Public Notice issued May 18, 1970, entitled “Applicability of Fraudulent Billing Rule” (FCC 70-513, 35 PR 7906).

3. Since adoption of the rule, the Commission has imposed many forfeitures on licensees for violation thereof and has designated for renewal or revocation hearing, a number of cases based in whole or in part on issues involving fraudulent billing. However, the Commission stated in a Public Notice dated December 7, 1972, 38 FCC 2d 1051, that it continued to receive fraudulent billing complaints, frequently confirmed by staff investigation, thus indicating that past sanctions had “by no means accomplished their purpose of causing all licensees to discontinue this practice.” The notice stated further:

“The Commission considers violation of the fraudulent billing rule to be a particularly serious one because it involves participation by the licensee in a fraud, and thus raises serious questions as to his qualifications to remain a licensee. Therefore, it intends to examine each case more closely in light of the questions raised as to the licensee’s qualifications.”

Since that date, the Commission has instituted revocation proceedings or designated hearings on renewal applications in a number of additional fraudulent billing cases, and it intends to pursue this course whenever it appears to be warranted by the facts.

4. In recent years, a number of instances have come to the attention of the Commission wherein licensees falsely certified to networks with which they were affiliated that they had broadcast certain network programs in their entirety, whereas in fact the licensees had deleted portions of the network programs or had not carried the programs at all. The Commission made it clear that it considered such false certifications to constitute fraudulent billing within the meaning of 73.1205, and imposed sanctions in a number of instances. See, for example, Radiozark Broadcasting of Louisiana Inc., 32 FCC 2d 603 (1971) and Channel 13 of Las Vegas Inc., 37 FCC 2d 518 (1972). In order to clarify its policies regarding “network clipping,” the Commission on March 2, 1973, issued a Public Notice entitled “Clipping of Radio and Television Network Programs.” (40 FCC 2d 136) The first two paragraphs of that Public Notice are particularly pertinent to our present proposal to amend the fraudulent billing rule:

Affiliation contracts between broadcast stations and networks typically provide that the station will be compensated for carrying specific network programs, commercials, and other material, including, but not limited to, network identifications, credit announcements or promotional material. In order to collect payment, the station periodically submits a statement to the network certifying that the specified network material has been broadcast. A certification form usually has space to indicate deletions or cancellations of network material. If deletions or cancellations are indicated by the station, the amount of payment received from the network may be reduced. “Network clipping” means that the licensee has not fulfilled its contractual obligation to the network, by certifying that specified network material was broadcast in full when there were, in fact, cancellations or deletions. Because of the number of complaints that have been filed with the Commission on network clipping, often confirmed upon investigation, this public notice is being issued to clarify further the Commission policy in this area, as well as pertinent rules and Commission cases dealing with network clipping.

Licensees are cautioned that as a general proposition the Commission considers falsely certifying that network material has been carried to be a use of a licensed facility for fraudulent purposes, which raises serious questions as to a licensee’s qualifications to hold a broadcast authorization. The Commission’s concern exists regardless of whether the clipped material consists of advertising, program content, or other material provided by the network, and regardless of whether network clipping exist because of the licensee’s knowing participation, its indifference, or its failure to adequately supervise or control its employees or agents.

5. As stated in the Public Notice as quoted above, we believe that falsely certifying that network material has been carried, whether the material consists of advertising, program content, or other material provided by the network, is use of a licensed facility for fraudulent purposes, raising serious questions as to a licensee’s qualifications to hold a broadcast authorization. We believe that similar questions are raised when a licensee furnishes false information regarding the broadcast of program matter supplied by any other part with which the licensee has entered into a contract or other agreement obligating the licensee to provide specified information concerning the broadcast of the program or program matter supplied by such party. We have in mind, inter alia, program syndicators which furnish consideration to licensees to carry their programs as supplied to the licensees, including in many cases commercial announcements sold by the syndicator or program packager, which the licensee has agreed to broadcast as consideration for receiving the right to broadcast the program. Another example which has come to our attention is that of sports clubs or leagues which make available play-by-play broadcasts of their teams in consideration of the stations’ agreements to carry the broadcasts in full, including commercial matter. (Footnote 1)

6. We wish to make clear, as we stated in our Public Notice of March 2, 1973, that:

Nothing in this notice should be interpreted to place any limitation on the licensee’s discretion to delete any material that it believes to be indecent, profane, obscene, in bad taste, or otherwise contrary to the public interest. The Notice is intended to emphasize that such deletions or cancellations should be accurately disclosed in the certifications to the network. This Notice is not to apply to clipping of a few seconds duration that occasionally results from switching or other technical problems. Finally, this notice is directed toward the obligations of the licensee. The licensee is not responsible for material deleted by the network; for example, the editing of films by a network to conform to time requirements, or returning to a sports event after a network commercial when play was resumed during the commercial.

7. In view of the above, we propose to amend 73.1205 of the rules by inserting therein a subsection (b) which would provide as follows:

Subsection (b): Where a licensee and any program supplier have entered into a contract or other agreement obligating the licensee to supply any document providing specified information concerning the broadcast of the program or program matter supplied, including noncommercial matter, the licensee shall not knowingly include in that document information required by the contract or agreement which is false.

8. We propose to re-designate the present rule as subsection (a), but to delete the last sentence of the present rule, (Footnote 2) substituting therefor a new subsection (c) which would read as follows:

(c) A Licensee shall be deemed to have violated this section if it fails to exercise reasonable diligence to see that its agents and employees do not issue documents containing the false information specified in (a) and (b) above.

Although we previously have held that failure to exercise reasonable diligence constitutes a violation of the rule regardless of the licensee’s lack of knowledge that false bills were being issued, (Footnote 3) we believe it advisable to make the application of the rule more clear by addition of subsection (c).

9. When it adopted the original fraudulent billing rule, the Commission issued a Public Notice on “Applicability of the Fraudulent Billing Rule,” containing eight illustrative examples of types of fraudulent billing to which the rule would apply. When the rule was clarified by the 1970 amendment, two more examples were added to the Public Notice. We now propose to add further examples illustrating the application of the proposed amendments to the rule, and to re-issue the Public Notice in its entirely for the convenience of licensees. Accordingly, a revised Public Notice is appended hereto along with the proposed revised rule for comments of interested parties. The 10 previously-released examples remain unchanged in the Notice as here revised, except for the interpretation in Example 7, in which the licensee’s obligation has been made more specific and less sweeping than before. The present language states that the practice described in Example 7 constitutes fraudulent billing “unless the dealer can provide satisfactory evidence that the manufacturer of Appliance A is aware that the dealer actually paid only $5 per spot because of the volume discount.” We believe that the manufacturer will be sufficiently alerted to the possibility that the dealer may obtain a discount if the licensee prints or stamps on the face of the affidavit of performance a statement such as “Rate subject to volume discount to dealer.”

10. Pursuant to applicable procedures set forth in 1.415 of the Commission’s rules and regulations, interested parties may file comments on or before August 29, 1975, and reply comments on or before September 29, 1975. All relevant and timely comments and reply comments will be considered by the Commission before final action is taken in this proceeding. In reaching its decision in this proceeding, the Commission may also take into account other relevant information before it, in addition to the specific comments invited by this Notice.

11. Authority for the amendments proposed herein is contained in sections 4 9i) and 303 (r) of the Communications Act of 1934, as amended.

12. In accordance with the provisions of 1.419 of the rules, an original and 14 copies of all comments, replies, pleadings, briefs, and other documents shall be furnished to the Commission. Responses will be available for public inspection during regular business hours in the Commission’s Broadcast and Docket Reference Room at its Headquarters in Washington, DC.

Adapted: May 29, 1975. Released: June 25, 1975. (Seal) Federal Communications Commission, Vincent J. Mullins, Secretary

Fraudulent Billing, Attachment 1

Section 73.1205 is amended to read as follows: 73.1205. Fraudulent Billing Practices:

(a) No licensee of a standard, FM, or television broadcast station shall knowingly issue to any local, regional, or national advertiser, advertising agency, station representative, manufacturer, distributor, jobber, or any other party, any bill, invoice, affidavit, or other document which contains false information concerning the amount actually charged by the licensee for the broadcast advertising for which such bill, invoice, affidavit, or other document is issued, or which misrepresents the nature or content of such advertising, or which misrepresents the quantity of advertising actually broadcast (number of length of advertising messages) or the time of day or date at which it was broadcast.

(b) Where a licensee and any program supplier have entered into a contract or other agreement obligating the licensee to supply any document providing specified information concerning the broadcast of the program or program matter supplied, including noncommercial matter, the licensee shall not knowingly include in that document information required by the contract or agreement which is false.

Note: Commission interpretations in connection with the rule may be found in the attached Public Notice entitled “Applicability of the Fraudulent Billing Rule.”

Fraudulent Billing, Attachment 2

Commission Issues Revised List of Examples of Applicability of the Fraudulent Billing Rule

On October 20, 1965, the Commission amended Part 73 of its rules and regulations to prohibit fraudulent billing practices by broadcast licensees. At the same time, it issued a Public Notice containing illustrative examples of certain kinds of fraudulent billing practices with which the Commission was familiar. It cautioned that “Since fraudulent billing practices may take many forms, the following list of examples should not be considered all-inclusive. (1 FCC 2d 1068, 1075) The fraudulent billing rule, now designated as 73.1205 of the Commission’s rules and regulations, was amended on May 13, 1970, to clarify its meaning and the previously-issued Public Notice was correspondingly amplified with two new examples, 23 FCC 2d 70.

The Commission has now adopted a notice of proposed rulemaking which would further amend 73.1205. In view of the proposed amendments, it is appropriate to add corresponding illustrative examples to the previously issued Public Notice and to issue a revised and consolidated Notice incorporating the additions adopted in 1970 as well. The examples which follow are, like those previously released, not to be considered all-inclusive but merely illustrative of the application of the rule to some practices. The ten examples previously issued are incorporated herein in their original form except for a revision of the Interpretation of the rule as it applies to the situation described in Example 7.

Seven examples:

Example 1: A licensee issues a bill or invoice to local dealer for 50 commercial spots at a rate of $5 each for a total of $250. In connection with the same 50 commercial spots, the station also supplies the local dealer or an advertising agency, jobber, distributor, or manufacturer of products sold by the local dealer, another affidavit, memorandum, bill, or invoice which indicates that the amount charged the local dealer for the 50 spots was greater than $5 per spot.

Interpretation: This is fraudulent billing, since it tends to deceive the manufacturer, jobber, distributor, or advertising agency to which the inflated bill eventually is sent, as to the amount actually charged and received by the station for the advertising.

Example 2: A licensee issues a bill or invoice to a local dealer for 50 commercial spots at $5 each, and the bill, invoice, or accompanying affidavit indicates that the 50 spots were broadcast on behalf of certain cooperatively advertised products, whereas some of the spots did not advertise the special products, but were used by the local dealer solely to advertise his store or products for which cooperative sponsorship could not be obtained.

Interpretation: This is fraudulent billing, even though the station actually received $5 each for the 50 spots, because, by falsely representing that the spots advertised certain products, the licensee has enabled the local dealer to obtain reimbursement from the manufacturer, distributor, jobber, or advertising agency for advertising on behalf of its product which was not actually broadcast.

Example 3: A licensee sends, or permits its employees to send, blank bills or invoices bearing the name of licensee or his call letters to a local dealer or other party.

Interpretation: A presumption exists that licensee is tacitly participating in a fraudulent scheme whereby a local dealer, advertising agency, or other party is enabled to deceive a third party as to the rate actually charged by the licensee for advertising, and thereby to collect reimbursement for each advertisement in an amount greater than that specified by the agreement between the third party and the local dealer. It is the licensee’s responsibility to maintain control over the issuance of bills and invoices in the licensee’s name, to make sure that fraud is not practiced.

Example 4: A licensee submits bills or invoices to an advertising agency, station representative, or other party indicating that the licensee’s rate per spot is $5, whereas the licensee actually receives only $5 or $10 per spot in actual payment from the agency, representative, or other party. Licensee claims that the remaining 80 or 90 percent of its original invoice has been deducted by the agency as “commission” and therefore no “double billing” is involved.

Interpretation: This is fraudulent billing. The agency discount does not customarily exceed 15 percent, and the supplying of bills and invoices by the licensee to agencies which indicate that the licensee is charging several times as much for advertising as he actually receives constitutes participation in a fraudulent scheme.

Example 5: A licensee submits a bill or invoice to a local dealer or other party for 50 commercial spots at $5 for a total of $250. However, the bottom of the bill or invoice carries an addendum so placed that it may be cut off of the bill or invoice without leaving any indication that the invoice originally carried such an addendum. The addendum specifies a “discount” to the advertiser based on volume, frequency, or other consideration, so that the amount actually billed at the bottom of the page is less than $5 for each spot.

Interpretation: The preparation of bills or invoices in a manner which seems designed primarily to enable the dealer to deceive a cooperative advertiser as to the amount actually charged for cooperative advertising raises a presumption that the licensee is participating in a “double billing” scheme.

Example 6: A licensee submits a bill or invoice to a local dealer for 50 spots involving cooperative advertising of a certain product or products at a rate of $5 each and actually collects this amount from the dealer. However, as a bonus the licensee ‘gives” the dealer 50 additional spots in which the product or products named on the original invoice are not advertised, so that the dealer actually obtains the benefit of 100 spots in return for payment to the station of the $250 billed for the 50 cooperative spots.

Interpretation: If the 50 “bonus” spots were broadcast as the result of any agreement or understanding, expressed or implied, that the dealer would receive such additional advertising in return for contracting for the first 50 spots at $5 each, the so-called “bonus” spots were, in fact, a part of the same deal, and the licensee, by his actions, is participating in a scheme to deceive or defraud a manufacturer, jobber, distributor, or advertising agency.

Example 7: A local appliance dealer agrees to purchase 1,000 spots per year from a station and thereby earns a discount which reduces his rate per spot from $10 to $5. During the course of the year, the dealer purchases 100 spots from the station which advertises both the dealer and “Appliance A” and for which the dealer pays $5 per spot. Since the station’s rate per spot for 100 spots is $10,the dealer asks the station to supply him with an invoice for the 100 spots on behalf of “Appliance A” at $10 per spot, claiming that if the manufacturer of the appliance had purchased the 100 spots, or if the dealer himself had purchased only these 100 spots within the course of a year, the $10 rate would apply, and that, therefore, the manufacturer should be required to reimburse the dealer at the $10 rate.

Interpretation: This practice constitutes fraudulent billing unless the licensee makes certain that the manufacturer of “Appliance A” is alerted to the fact or possibility of the dealer’s earning a volume discount. Thus, unless the dealer provides satisfactory evidence that the manufacturer is aware that the dealer actually paid only $5 per spot, the licensee should print or stamp a statement on the face of the affidavit of performance which is to be forwarded to the manufacturer. The statement might be, for example, “Rate subject to volume discount to dealer.”

Example 8: A licensee issues a bill or invoice to a dealer for commercial spots which were never broadcast.

Interpretation: This practice, prima facie, involved fraud, either against the dealer or against a third party which the dealer expects to provide partial reimbursement for the nonexistent advertising.

Example 9: A licensee knowingly issues a bill or invoice to a local or national advertiser which shows broadcast of commercial announcements one minute in length, whereas in fact some of the announcements were only 30 seconds in length.

Interpretation: This is fraudulent billing, since it misrepresents the length of the commercials, a highly important element of the price charged for them.

Example 10: A licensee knowingly issues a bill or invoice to a local or national advertiser which sets forth the time of day or date on which commercial announcements were broadcast, whereas in fact they were presented at a different time or on a different day, or were not broadcast at all.

Interpretation: This is fraudulent billing, since time of broadcast is often highly important in its value and the price charged for it. Charging for advertising not broadcast is clearly fraudulent.

Example 11: A licensee of a station affiliated with a network furnishes a written certification that the station has broadcast a certain network program in full, whereas in fact the station has not broadcast a part of the advertising content of the program, or has failed to broadcast a portion of the program other than advertising.

Interpretation: Falsely certifying to the network that a network program was broadcast in its entirety constitutes a violation of 73.1205(b) of the rules, regardless of whether the matter not broadcast consists of advertising or other matter.

Example 12: A licensee enters into a barter agreement (Footnote 4) with a program supplier whereby the licensee agrees to broadcast the entire program as furnished by the supplier, including commercial spots which the supplier already has sold. The station itself is permitted to sell a number of additional spots for insertion in the program. The station is required by its agreement with the syndicator or supplier to furnish a statement as to whether each program was broadcast in full as furnished by the supplier. Although the station furnishes certification that the program was broadcast in its entirety, it has in fact omitted portions of either the commercial or noncommercial segments of the program.

Interpretation: As in example 11 above, such false certification constitutes a violation of 73.1205(b) of the rules.

Example 13: Although principals of the licensee are unaware of the fact, one or more station employees are either intentionally or because of carelessness, issuing false bills, invoices, affidavits, certifications, or other documents such as are described in 73.1205(a) or (b). For example, an employee is issuing bills based upon advertising contracts or “start orders” without checking the program logs for the period covered by the bills to make sure that the advertising actually was broadcast as represented in the bills. Principals of the licensee are unaware of this practice but have not exercised reasonable diligence to see that their employees do not engage in such practices, which have been proved by experience to be likely to result in issuance of false bills or invoices.

Interpretation: Whether the licensee’s agent or employee is intentionally or only carelessly issuing false bills, the licensee will be deemed to have violated 73.1205 unless it exercises reasonable diligence to prevent such practices.

FR Document 75-16314 Filed June 24, 1975, 8:45 a.m.

Footnotes:

1. This is technically known as barter.

2. The present last sentence reads: “Licensees shall exercise reasonable diligence to see that their agents and employees do not issue any documents which would violate this section if issued by the licensee.”)

3. Faulkner Radio, Inc., 25 FCC 2d 893 (1970), in which the Commission stated: In order to affirm the forfeiture, it is not necessary to find that the principals of the licensee had direct knowledge of the fact that false affidavits were issued. In its prior Memorandum Opinion and Order, the Commission stated that “there was a clear indication of lack of diligence on the part of the licensee.”)

4. See pages 514B-514C and Chapter 9, pages 604-605)

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